2011 (8) TMI 581 - AT - Service Tax

service tax laibility - whether the appellants are liable to service tax under the definition of consultancy engineer for the service rendered by them in the field of engineering to their clients and whether the amounts received by them for supply of the technical know-how is to be treated as a taxable value for recovery of the service tax? - Held That - In view of Betts UK Ltd. vs. CCE, Goa (2006 (4) TMI 41 - CESTAT, MUMBAI) and Ispat Industries Ltd. vs. CCE (2007 (2) TMI 114 - CESTAT, MUMBAI) appellant did not fall under the category of consulting service and accordingly allow the appeal of the appellant.

Summary

Issues:
Whether the appellants are liable to service tax under the definition of consulting engineer for the service rendered in the field of engineering to their clients, and whether the amounts received for the supply of technical know-how should be treated as taxable for service tax recovery.

Analysis:
The appeal was filed by M/s. Kinetic Engineering Ltd. against an Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), Pune. The case involved the appellants engaged in manufacturing motor vehicles and providing engineering services to clients under consulting engineer category. The Department issued a show-cause notice, leading to a demand for service tax, interest, and penalties. The appellant argued they were not covered by the consulting engineer definition and did not provide consultancy or technical assistance. They contended that technical know-how supply was incidental to manufacturing, not a service. The appellant also disputed the applicability of the extended period and penalties, citing relevant legal precedents, including a decision by CESTAT Mumbai. The respondent reiterated the lower authorities' findings, asserting the appellant's liability for service tax under consultancy service.

The key issue revolved around whether the appellants fell under the definition of consulting engineer and if the technical know-how payments were taxable for service tax. The definition of "consulting engineer" under Section 65 of the Act was crucial, requiring a professionally qualified engineer or firm providing advice, consultancy, or technical assistance to a client. The Tribunal referred to a precedent involving Mahindra & Mahindra, where transfer of technology and technical assistance against royalty payment was held not liable for service tax. The Tribunal upheld this precedent, emphasizing that the technical know-how transfer between Indian companies was akin to the foreign company-Indian company scenario in the cited case. Consequently, the Tribunal ruled in favor of the appellant, determining they did not fall under the consulting service category, thereby allowing the appeal.

In conclusion, the judgment addressed the issue of service tax liability concerning technical know-how supply by M/s. Kinetic Engineering Ltd. The Tribunal's decision hinged on interpreting the consulting engineer definition and relevant legal precedents, ultimately ruling in favor of the appellant based on the similarity to a previous case involving royalty payments for technology transfer. The detailed analysis considered the nature of services provided, the definition of consulting engineer, and applicable legal precedents to arrive at a favorable outcome for the appellant.